ROLLUP: Saylor Risk? | Warsh’s New Fed | SpaceX IPO | Coinbase’s Everything Exchange

TRANSCRIPT

David Hoffman:
[0:04] Bankless nation it's time for another weekly roll up it is the third week of june and once again ryan trott adams is on vacation well deserved and we got tom schmidt usually we tap in his seed but we have tapped in his seed like so many times so we're bringing we're bringing my bff back uh tom welcome

Tom Schmidt:
[0:20] I'm glad i'm the bff not his seed i've seen him on on bankless too many times so thanks for having me.

David Hoffman:
[0:25] Yeah yeah i really really appreciate you uh tom um you're in new york why aren't you at the Knicks Parade?

Tom Schmidt:
[0:32] You know, I'm gainfully employed, so I felt like it's very difficult to do both that and be at the Knicks Parade, but it looked insane. I was like, yeah, Fulton Street, just completely jammed full of people, so I'm also happy to just observe it digitally, you know?

David Hoffman:
[0:46] Yeah, I wake up and do the thing that you shouldn't do, which is I immediately open up my phone, and I pulled up an Instagram and looked at stories, and there were all of my friends, like, I'm two hours ago already in Manhattan at like 6.30 in the morning. I'm like, Jesus, what are you guys doing?

Tom Schmidt:
[1:01] I don't get it. I'm also, you know, I'm one of those bandwagon Knicks fans. So I can't really cop to being a Knicks fan. I'm just like, I'm here.

David Hoffman:
[1:10] Yeah, I'm glad it's happening. The energy in the city is great. I get to ride it. We got some news to talk about. Equities are up on the week, but crypto is down. Strategies Stretch is trading 15% off par while there's a lot of grave dancing going on on Twitter. We have the new FOMC meeting with the new, brand new, shiny new Fed chair, Kevin Warsh. He said... While he was getting the job, while he was going through the job interview process, that he's going to cut. And then once he got the job, it turns out when he just was saying what Trump wanted him to say, now that he's got the job, he doesn't have to say that anymore. So now he's saying something else. There was the SpaceX IPO on Friday, and now it's the seventh largest company in the world. And I got a question. Why is Gito, the block building software on Solana, up 70% in 30 days? And then also Coinbase launched 21 new products, all with their system update event. We're going to go through all of this and more. But first, let's just go back to equities. Equities looking good on the week, still rallying after the Iran war. Peace deal got minted. Bitcoin and crypto followed them shortly, but not anymore. Not yesterday and definitely not today. Bitcoin is now trading back right at the 200-week moving average at $62,600.

David Hoffman:
[2:24] I think maybe this is just me, but I think people's eyes are all on Michael Saylor's Stretch product, which was starting to recover after it dipped down to $91 last week, June 5th, and they recovered up to like $96, $97, but it caught all the way down to $82, Tom. This morning, it's trading back up to $87. So far. So far, almost 20% off of its peg of $100, making people very bearish about the confidence of strategy. I don't know if you pay attention to Stretch. I pay attention to stretch quite a lot. What do you think about all this?

Tom Schmidt:
[3:01] Yeah, I think this is really the first time I think we have strong evidence that sailor and strategy are weighing heavily on the market. People have been saying this for months, like, why is Bitcoin going down? Why is it being underperforming? And people say, oh, well, there's the sailor risk. But the market was not reflecting that. And, you know, it's kind of like, you know, you look at the bonds market, the bond market to determine, you know, sort of confidence in government and credence around government policy. This feels like you know the sort of tariff tantrum equivalent but for for Sailor.

David Hoffman:
[3:34] There was definitely a dislocation here because we could have been bullish. The equities market, bullish all week. The FOMC hawkishness, we'll talk about that. But what didn't seem to be too bad, crypto was going up. Everything was going up except for Stretch. Stretch never recovered. And it seems to be that it is actually kind of a focal point of the Bitcoin market. And therefore, usually we've seen assets like Hyperliquid, VVV, the revenue generating assets, which have been counter-cyclical to Bitcoin. Today, they are cyclical to Bitcoin. Bitcoin is literally dragging everything down. And it seems to be that Bitcoin can't get bullish until this gets resolved.

Tom Schmidt:
[4:17] Yeah. Obviously, sailors sold a couple Bitcoin. Just a couple. To inoculate the market, quote-unquote. And then, obviously, after the fact announced that he bought several times more Bitcoin. But I think... It seems like this is always going to be a looming issue. It's a little bit like a, you know, token, like a long dated token vest of this is just always going to be this thing dangling over your head. And so he needs to find a long term plan for it. I think people discussed, hey, maybe selling a larger amount of Bitcoin now. So you have, you know, a year plus worth of cash to be able to pay dividends. But if anything, I think we're also just an instrument to trade, right? We're coming up towards the end of the month when the first event, you know, should be coming out. Uh funding has been going crazy so lighter has a stretch perp and so it's i was like for a while like 900 annualized so some people are also doing you have this cash and carry trade if they're going to hold the stretch short the perps maybe try to collect the interest it's just like all sorts of super interesting environment but i feel like we're going to get this resolved one way or another, you know closer to the end of the month and i i don't quite know how because i i do find i'm not a particular big strategy or sailor bull but he does have the ability to uh you know pull a rabbit out of a hat on demand. So they'd be able to do something.

David Hoffman:
[5:33] Yeah, the kind of the fundamental quandary that I see with Stretch is that the stated intention of Stretch is that if it trades below par, trades below 100, he'll simply just increase the interest rates to attract more buyers. And he'll just pay more yield to attract more capital, you know, slap your hands together, so simple. But the problem with that is that if you do that, then you run out of money faster. And there's like a confidence issue that you impose upon your asset. If you like jack up your interest rates from like 11%, which is already high, like how many other yield sources are you beating with 11% like most of them? And so you go up to 13, 14% in order to attract more buyers of the stretch asset. Like, well, you're just going to run out of your cash balance faster, which is going to reduce the confidence. And so it doesn't really seem to be a solid, elegant solution. It seems you're just kind of taking from one pocket, putting another, and then everything nets out at the end. It's still a fundamental problem.

Tom Schmidt:
[6:31] Yeah. I think there's a lot of businesses or investment strategies that are, sort of predicated on this idea of Coinbase kegger from past decade or so. But the problem is you don't eat kegger, right? Like the United States on average is maybe, you know, a thousand feet above sea level and that you hit the Rocky mountains and it's like, oh shit, I was not prepared for this. Um, and the question is how do you sort of, um, you know, uh, moderate some of this, this volatility while you are structurally long-term Bitcoin. Um, I think the plan is, you know, you should have more of a, uh, you know, insurance fund for this kind of thing. But, um, ultimately, you know, if you're a long strategy, probably if you're buying stretch, you're also a long Bitcoin. Um, the question is, you know, why this instrument to express that view.

David Hoffman:
[7:19] Yeah, I think that's the big question going on is like, why buy and hold MSTR? Jeff Dorman put out a tweet that people are really liking on Twitter. He goes, my base case right now is 70% odds that they keep on doing what they're doing strategy, which is selling small amounts of MSCR every month at non-accretive levels, crushing the stock until it falls to 0.7 MNAV. This would at least give stretch holders a glimmer of hope Bitcoin would be fine, but MSCR would be hammered. He's been hammering MSTR to this point. At least it is still above MNAV, but nonetheless, value capture in MSTR does not really seem to be a thing. So that's his first case. 25% chance for his next case is that he does the right thing, according to Jeff, admits he messed up when he bought back the debt, sells $3 to $4 billion of Bitcoin, buys a ton of time, which is marginally good for MSTR, very good for Stretch, but bad for Bitcoin. And then a 5% chance that he does the nuclear option, which is just kill the dividends, let the preferred fall to 30 to 40 cents on the dollar, which would close the capital markets to Michael Saylor. But at least he shuts off the $1.7 billion per year cash outlay problem. At some point, I'm like, dude, like you don't have an infinite money printer. Like you've bought all the Bitcoin that the market is allowing you to have. I don't think the last option is too crazy for him. It's very painful. It's a bad look. There's probably lawsuits, a bunch of stuff involved with that. I don't know if you have an opinion on which is the most likely outcome here.

Tom Schmidt:
[8:48] Well, I see you wearing that jersey. And really, the question is, do you want to be Brazil or do you want to be Argentina? And those are kind of the two paths open to you. Um i i think one is maybe you know uh short-term painful long-term better the better path the other was you kind of kick the can down the road a little bit more i i really uh and not the specialist not the person to call when it comes to um, you know interrogating the psyche of of michael sailor which ultimately feels like you kind of have to uh understand and underwrite if you want to buy any of these assets so um i don't know that's a it's certainly an interesting area to specialize that in terms of the market. But I think if anything, again, I think you probably find some way to cover some of this short term debt. And then, hey, maybe we just give ourselves a little bit more window and hope that Bitcoin goes up in that remaining window.

David Hoffman:
[9:35] Speaking of the psyche of Michael Taylor, this clip went around that people really didn't like. This was an interview that Michael Taylor gave on CoinDesk. He was asked about how he came up with Stretch, the philosophy behind it and he just goes like oh yeah i sat down with ai and i use artificial intelligence to build stretch uh which is not a good clip to have to give confidence in the market although i think we all you everyone uses ai i use ai i'm sure tom you use ai so i don't really think i'm not blaming taylor for using ai it sounds a little goofy yeah

Tom Schmidt:
[10:07] Maybe he was fable five you know uh maybe he had early mythos access and that was uh that was really what really designed stretch so So people are underrating it. You know, we had a almost ASI level model designing this instrument.

David Hoffman:
[10:19] Yeah, I suppose it really depends on what model he uses. We'll reserve my bullish or bearish takes depending on the model he used.

David Hoffman:
[10:25] All right, let's get into FOMC meetings. So this is Kevin Warshaw, brand new Fed chair. His first FOMC meeting. There's a quote from BlackRock that I'll read. Rick Reeder, the head of fixed income at BlackRock, says, Today we believe that the Federal Reserve's FOMC ushered in a new era of monetary policy in the United States. And so this is seemingly the news that the market is trying to digest is what is the Fed's new strategy? Because there was a huge deliberate regime change at the Fed showed by Kevin Warsh's disposition. He held rates at 3.5% to 3.75%. So that's not any difference. That's not the regime change that's happening. The regime change is what the Fed is communicating to the market. And so Powell had this like cookie cutter, 341 word, like typical response, like formulaic speech that he would give to the market. Kevin Walsh cut that by 130 words. And he also intentionally killed forward guidance.

David Hoffman:
[11:25] And he also was the first chair to not submit his own dot on the Fed dot plot, trying to not show his cards on his future opinion on rates. And in the past, Kevin Warsh has just shown, articulated to disdain for forward guidance, and he says it just hamstrings policy. So analysts are calling it a green style span return to constructive ambiguity. And so we're letting the market be a little confused and unsure and the Fed just not showing its cards in order to give the Fed a little bit more flexibility and, you know, ammo about what they can do. Tom, what was your reaction?

Tom Schmidt:
[12:03] Yeah, I think most of the critiques around Worsh were more, I felt like, aesthetic. You know, it's sad to see, you know, Powell out.

David Hoffman:
[12:10] Powell looks like a Fed chair.

Tom Schmidt:
[12:11] Yeah, and I think specifically people have missed the good afternoon instead of the good day with Warsh. I don't know. I think, you know, it's still very early. And ultimately, like what we've seen from FedChairs in the past is really where they kind of show their true character is when there's a crisis. And that's when they decide what to do. Obviously, Bernanke-Berry Famous with 08, Powell, with COVID. And so, you know, I think I've seen some charts floating around where you look at not dot pop, but like banking analysts, projections of, you know, several years out of interest rate. And it's basically always wrong because there's always some exogenous event that ultimately ends up affecting Fed policy. And that's really the moment when these things kind of matter. So, I don't know, I think we got a few more years and a few more maybe hectic events before we see how good Warsh is.

David Hoffman:
[13:06] Business as usual until something crazy happens, until the AI bubble pops and the Fed has to watch to see if it needs to step in there or not. It is worth noting that nine of the 18 Fed officials now do see a hike by the end of the year, which is not what the markets were positioned for. So the one bad week in the market or the one bad day in the market this week was right after this NFOMC, which was yesterday, Wednesday. S&P dropped 1.2 percent. Two-year yields jumped up. The dollar has gone up.

David Hoffman:
[13:39] Odds of an October rate hike has gone up to 60 percent. Bitcoin fell 3 percent. Gold sold off. It's just like, yeah, it's a one-time response to the market. I don't think it's anything structural as of yet. The structural change is... The game theory that Fed, the game that the Fed is trying to play around game theory. There's also something that I'm going to keep an eye on is Kevin Warsh introduced a task force. He just said task force over and over and over again. So there's a communications task force, a balance sheet task force, a data task force, a productivity and AI task force. All of these task force, I think analysts are being interpreting them as like, These are just Kevin Warsh building mechanisms to build the consensus that he wants to build. So it's bureaucracy, but Kevin Warsh wants to do something. And so he's setting a team of tasks for us to give him the response, to give him the justification to do the strategy. So giving him leverage in the future. That's my read. That's a bunch of other people's reads. I don't know if you have a take on that, Tom.

Tom Schmidt:
[14:39] I have less of a read. I will say on the data front, you know, I was always under the assumption that, you know, really the Fed was maybe the most authoritative, the most accurate source when it comes to looking at these different measures of inflation or inflation that they obviously use to influence policy. And I was talking to Tarun Chitra from Gauntlet and Robot, who's a co-host of my podcast a while ago, and he was shitting on the Fed's data efforts. He said they actually have incredibly poor data infrastructure, and it's like these private market investors have way more sophisticated models for CPI. So maybe the answer is he's trying to turn the Fed to AI native or something like that. I don't know. Maybe that's favorable.

David Hoffman:
[15:22] That would align with what Mike Selig is trying to do with the CFTC. He's just like, let's build this institution up in an AI era first. and so I like that. I like that. That sounds very sci-fi. I'm into this.

David Hoffman:
[15:33] Speaking of sci-fi, let's go into SpaceX. So SpaceX is now the seventh largest company by market cap. Briefly, it flipped Amazon before it fell back down. It was briefly ahead of Amazon. Amazon, the thing that makes like $750 billion a year in revenue. SpaceX, which makes $18 billion a year in revenue, flipped Amazon. It's now back down to number nine by total assets by market cap, number seven by total companies by market cap uh it rallied post ipo uh which i think was a little bit surprising not consensus the consensus was that this thing is a high fdv low float shit coin and all the insiders are going to uh dump on you turns out it was a high fdv low float shit coin which was very easy to pump uh it got when it ipo'd it popped up to 165 and then it got all the way up to 216. It has since traded down, down to 180. Brand new company in the top 10 company market caps, Tom, what do you think?

Tom Schmidt:
[16:31] Just to be clear, you know, that may still happen. That may still happen. The unlock schedule for SpaceX is insane. I like this Bill Ackman tweet today or yesterday. The thing that makes SpaceX so valuable is that it's so valuable. I think referring to their ability to do all these acquisitions of X and XAI and now Cursor just using this extremely high.

Tom Schmidt:
[16:57] Share price. and so it's this really interesting instrument where, you know you can almost say it's sort of you know microstrategy like in that way where it's you're trading at some huge premium to maybe where these assets would normally otherwise be trading which allows you to sort of suck it up into this vehicle and maybe there's some synergies maybe there's you know so the Elon Musk you know around it but, I think on the other hand it is like this unique one-of-one instrument right people love, Starlink and obviously Amazon has their own competitor but everyone knows Starlink the brand and there are the real ones everywhere and not many other companies if any have the kind of ability to get large payloads in flight that SpaceX has. The fact that it has all these other things wrapped up into it may be more of a kind of rounding error it's kind of like Square buying Tidal or something but I don't know I think I was also surprised by how, warm the market was to it post-IPO, where for a while it seemed like this thing was getting shopped around everywhere. Fidelity lowered the minimum assets on platform required to participate from like 100,000 to like 2,000. And it just felt like, okay, this thing's getting super shopped around. Is it even going to get filled? Ended up being obviously very over-subbed and then totally, totally popping after the IPO. So I don't know where it's going to go from here, but I certainly think Elon is not one to doubt.

David Hoffman:
[18:19] Yeah, the Bill Ackman tweet that you just mentioned where SpaceX has so much leverage because it's valuable, I think it just goes beyond,

David Hoffman:
[18:27] I love the take, I think it just goes beyond capital, but just like the clout of Elon and the prowess of Elon and the uniqueness of the fact that like what other company is exposure to space? The interesting thing about SpaceX is that I think it could have in an alternative timeline IPO'd on the stock market at like one 100th evaluation and that would have been another normal day and that would have been totally fine and no one would have thought anything of it but there's like so much surface area for financial engineering and I don't say that in like a negative way but just Elon knows knows this game and he intentionally did the high FTV low float thing there's a lot of stakeholders at play who are incented to make this thing go up not even just inside of the spacex arena but like yo think about the open ai and anthropic ipos that people want to be bullish on and we want those to go up and there's the whole ipo vertical around those so if if spacex plummets that's not looking good for open ai and spacex and so like there's just like a lot of if you do it right and you financially engineer it correctly you just manifest a new market cap and it seems kind of weird that that's true like shouldn't be shouldn't companies be traded on their fundamentals But, like, I think it's a question of, like, is it hot air or is it just smart financial engineering? And I'm in the latter camp.

Tom Schmidt:
[19:50] I think there's a lot of, yeah, like, path dependency to it, right? Like, the way in which you raise the capital and, you know, I think of almost some of these other, you know, businesses as almost, like, kind of filling in the gaps in, like, a jar of nuts of, like, oh, yeah, you can't just rely on this very chunky, sort of, not as immediately repeatable or sexy, like, government contracts to do these space launches. We also have all these little things kind of sprinkled in that allow you to sort of get there long-term, in addition to obviously the Elon aura. I think there's also an incredible vindication for pre-IPO perps and on-chain perps. I don't know if you talked about this on the last show, but I think TradeXYZ, which is the RWA perp platform on hyperliquid HIP3 markets, they priced the IPO pretty much perfectly. They priced at like $160 and it got there at the end of the trading day. And even today, they're still doing hundreds of millions of volume on SpaceX. And so, you know, we saw a little bit of this with the Cerebrus IPO a couple of weeks ago, but it just feels like this is something that we're going to see continuing for OpenAI, Ananthropic and every new, you know, hot IPO that's coming out this year and coming years.

David Hoffman:
[20:59] I think that's right. I don't have that in the agenda, that topic in the agenda, but you're totally right. I do think that the Cerebris IPO was the shot across the bow where like you saw the Cerebris, you saw the picture of the people on the trading floor with hyperliquid pulled up and you could see the red banner of like banned in your jurisdiction, but it doesn't matter because they were just looking at it for the price action and that was like the first indicator that was the spark and everyone was watching hyperliquid as just for just for the pricing data like it wasn't people on wall street probably weren't trading it or maybe they were but that didn't really matter it's about the brand of hyperliquid and the effectiveness of the pricing mechanism showing up and now it showed up for the biggest ipo ever like this was game time for hyperliquid and the pre-ipo markets and they hit it out of the park. And there's two more gargantuan IPOs coming down the pike. So it's actually pretty cool to see something come out of the crypto world. It kind of like the tail that wags the dog in the TradFi world. Like that's one of our victories. That's a huge hyper liquid victory. It feels like a little bit of a crypto victory, which we are desperately in need of these days. And so I kind of expect this to be an unfolding story as the private markets still get more kind of frothy and bigger and all the TradFi world kind of pays attention to the perpetual and all this kind of stuff.

Tom Schmidt:
[22:17] Yeah, totally agreed. I mean, in some ways, it reminds me of kind of the 24 election and poly market. And hey, you have this, you know, third market that you're probably not paying attention to, but it's providing way more signal, way more insight and way more accurate information than you're getting through kind of your conventional signals.

Tom Schmidt:
[22:35] And that ultimately ends up being the way the market goes.

David Hoffman:
[22:38] Let's talk about another perpetual protocol that most people might not be paying attention to because this is going to be our mover of the week. Talking every once in a while that there is an active token on the market that I want to pay attention to and learn a little bit more. I go and dig into it. So this week is Gito. Gito is up 30% on the seven day and 70% on the month. Gito, it's the kind of like the flash block. Flashblocks had a baby with Lido, if you speak Ethereum, but it's on Solana. And so it's very... Yeah, it's very intimately intertwined with Solana block building and transaction ordering. And they, in May 5th at the Solana Accelerate conference in May in Miami, they announced JTX, which is going to be an actual product rather than like a back-end infrastructure. Products for solana is a front end user interface that's a spot exchange and perp protocol using gito technology uh but on the solana blockchain kind of using turning solana into like a a an exchange app chain if you will you know if gito is successful just use all of solana's block space so people are pretty excited about the incoming jtx exchange when jtx goes live 80 of fees are going to go back to buy and return GITO tokens back to the GITO DAO, and then 20% will go to reinvest into the ecosystem for marketing, trading competitions, and growth. So that's why people are pretty bullish on JTO, the GITO token.

David Hoffman:
[24:07] I think it's just kind of interesting that like, oh, now Solana's got a perp dex and, you know, Ethereum's got lighter as the perp dex. Hyperliquid is the spearhead of perp dexes. Ando is releasing a real world asset perp dex. We're going to talk about Coinbase in a second. Coinbase released pre-IPO perps. Everyone is doing perps left and right. What do you think?

Tom Schmidt:
[24:28] Yeah, I think as always, it's like it takes one person to kind of break open a category and then you have many fast followers. I think some of them definitely have a right to be there and they take an original idea and twist a little bit or serve a unique audience or have some interesting distribution story. Some of them, I will say also as a VC, do not. And as soon as some new categories have been out for a year, you get like a million new copycat kind of pitches. It is interesting to see, I would say, like the next evolution of a lot of these, pretty OG DeFi protocols that have maybe hit the ceiling of what their original market looks like. And so if you're Jito, okay, great. You have this great product on Solana, works super well. You've eaten up a pretty good share of legal staking volume. Where do you go next? I think if I look at something like EtherFi on Ethereum, there's only so big the restaking market can be. And moved into building a neobank, which has been pretty successful. It seems like Gito is kind of going the opposite route of, hey, where do we kind of go next? What's the next big market? And obviously, there's a lot of synergies between, a product that can do really good order routing and really good block building and something like a perpdex, which naturally needs, a matching engine that has fairness and transparency and good execution. So it's cool. I'm excited to see it in the wild.

David Hoffman:
[25:54] I do enjoy the perp phenomenon simply because it's the most revenue generating product crypto has ever produced since blockchains themselves. I think that's a correct statement or maybe DEXs like Uniswap makes a bunch of revenue too. And so like that's what gives me some amount of like hope or hopium about the phenomenon of perp DEXs. It does feel like the making of a bubble like we are somewhere up the euthanasia roller coaster. I don't know quite where. Doesn't seem to be too frothy at the moment, but I don't know. I don't know if you have an opinion on this.

Tom Schmidt:
[26:31] I think at the very least, I don't think we're seeing, you know, a bunch of leverage or credit being pumped into this that is going to kind of unwind at some point. Maybe you could argue with...

David Hoffman:
[26:40] Ironically, though, the product is itself leverage.

Tom Schmidt:
[26:43] That is true. That is true. Luckily, self-contained. It's like a little, you know, implosion in a dome or something like that. But I also think we're working our way through the alphabet when it comes to the TXs. You know, we already had FTX. Uh there's no gtx luckily we got htx we got we got jtx um i you know i don't know with what's next but um you know i i would encourage entrepreneurs maybe to you know think outside the box a little bit and there are other naming conventions get.

David Hoffman:
[27:06] Away from the x yes yeah what is tx is that a thing at all

Tom Schmidt:
[27:14] Uh i don't think so i forget what the actually ftx stood for initially there was some acronym which i'm totally x is.

David Hoffman:
[27:20] Always for exchange i don't know how t got there

Tom Schmidt:
[27:23] Yeah um.

David Hoffman:
[27:25] I what did ftx stand for

Tom Schmidt:
[27:28] I i'm just gonna futures trading exchange i don't know.

David Hoffman:
[27:32] Ftx stand for uh i got nothing dude nothing futures token exchange futures token exchange that doesn't even make any sense

Tom Schmidt:
[27:46] Futures exchange but yeah it uh you know bad name.

David Hoffman:
[27:51] Bad name yeah

Tom Schmidt:
[27:52] Probably don't want to follow in their footsteps but.

David Hoffman:
[27:56] Um uh let's talk about the uh the coinbase system update so they announced 21 products all at once this was on a june 16th uh under this like everything exchange brand and push trying to become users primary financial account not just for crypto but for everything so some of the headline products that they released tokenized stocks backed one-to-one by u.s shares with on-chain dividends and shareholder rights pretty cool but this is only for non-us customers of coinbase kind of ironic but this does allow for 24 7 trading on u.s equities kind of cool in the coming months they announced options trading for crypto and stocks they also announced real world asset perpetual futures and pre-ipo perps uh anthropic and open ai they hinted as coming soon they also uh popping open the hood of coinbase they talked about a unified order book liquidity uh like order like order book uh platform for their us spot international derivatives deribit and so one single order book to power all of their front ends uh they also announced private transactions on base to bring privacy to base and also a Coinbase advisor. This is a Lincoln Merz project out of Coinbase. First SEC registered AI investment advisor Seems pretty hype-y. Tom, what's the most exciting to you here out of all these products?

Tom Schmidt:
[29:15] I actually thought the base private transactions were pretty cool. I feel like we're seeing this privacy mini-renaissance, obviously starting with Zcash. And then I saw recently today, or this week, Zama was doing these private deposit pools with Morpho. And now we have this. And so it feels like, again, this sort of missing elephant in the room. Sometimes it's missing, and it's also an elephant in the room when it comes to crypto. And now we're seeing, hey, Maybe there's some green sheets popping up around bringing privacy back. I think this feels, I mean, cool speed of products. I think some of these are obviously, again, followers of other companies that have gotten there first. And now Coinbase is being the second mover with their distribution. But the question is just like, hey, can they actually get people to treat them as the everything exchange? And when they wake up in the morning and they want to, you know, go buy some SpaceX, are they going to think I'm going to go to Coinbase? Or are they going to think I'm going to go to Robinhood or Fidelity or whatever my other brokerage is? And, you know, to compete, at least you need something special to get people.

David Hoffman:
[30:15] That's right. Yeah, that was exactly what I was thinking. It's important that Coinbase becomes feature complete. And so I can buy Bitcoin alongside SpaceX and I want that in the same spot. And I don't want a new tab. I just want it all right then and there. But that's like kind of getting up to par and they need to get there. I don't know why the generic user of the world, the generic investor of the world would use Coinbase over Robinhood, over interactive brokers. And so there needs to be a little bit of secret sauce there. And I don't quite know what they tap into in order to unlock that.

Tom Schmidt:
[30:48] Yeah, I do always think too, I think they could use a little bit of a rebrand. Ironically, I think.

David Hoffman:
[30:55] Actually- Are you talking about the UI of Coinbase.com?

Tom Schmidt:
[30:57] Oh, I mean, that I feel like is always every two months they're moving things around. I think more, weirdly enough, I think base would have been a great rebrand for Coinbase versus base the chain. You know, when you're thinking about going to Coinbase, you know, the name really says it all. You were probably thinking about trading some coins versus maybe thinking about getting a mortgage or maybe thinking about opening a 401k, but a little minor nit.

David Hoffman:
[31:22] I don't know if that's minor because like crypto has the worst brand it's ever had ever and i kind of don't see that changing anytime soon like crypto right now seems to be kind of fading into its back-end infrastructure era where like hyper liquid is just going trying to become a platform you know ethereum is becoming a platform all the blockchain is fading away as designed was always supposed to be this way and i think that kind of reduces our industry's ability to like change our brand because no one interfaces with us anymore. And so it's just left with how it is, which was FTX and Donald Trump, like implosions and grifts. And I don't know how we like take control of our brand. And that maybe that's bearish, but like Coinbase could, to your point, just like step away from it and be like, we're just not a crypto company anymore. We serve crypto products. We also serve stocks. The fact that it's tokenized is not your concern. That's our concern. Like you just buy the thing and we take care of the rest, which is how brokerages work.

Tom Schmidt:
[32:22] Yeah, I think that's, you know, probably a much bigger, you know, audience today and seems to be the way even the crypto world is going. Or if anything, I think it's more maybe more bifurcating where, you know, stable coins are very hot. So maybe they should call it stable coin base and do the other rebrand.

David Hoffman:
[32:39] You mentioned privacy and how privacy is having a little bit of renaissance uh this isn't in my agenda but i do want to uh talk about near confidential intense tvl which is climbing it's still pretty small so it's a this is actually a little bit uh of old data this is three days old i think it's past like 40 million but what near is doing is near is providing a confidential pools kind of like kind of like zcash privacy pools but for other chains and other assets so on here is a near but also uscc and zcash and tether and eth and so it's creating little privacy pools for other blockchains and it's also growing there is a little there is a big privacy renaissance happening at the margins you know zcash is growing near is growing um uh base has private transactions zama is doing stuff uh and it feels good it feels good that we are getting privacy in where, like, it's kind of like the crypto industry putting our money where our math is.

Tom Schmidt:
[33:38] Yeah, I again, it's been something that's been long promised. And it's cool to also see just the real adoption. I think a lot of builders in the space. And there've been a lot of false starts throughout the years, not not for any particular reason. But hey, just the market wasn't there. The liquidity wasn't there. The demand wasn't there. And now people see, oh, if I want to live my entire financial life on chain, I probably also want privacy. If I'm going to be spending, you know, with a debit card out of my wallet or, you know, custodying my tokenized stocks in my wallet, I probably also want to be able to then, you know, go spend and not let everyone know, you know, what I hold. And I think the numbers kind of speak for themselves.

David Hoffman:
[34:20] Are you a Zcash bull, Tom?

Tom Schmidt:
[34:22] Do you own any Zcash? Not financial advice. We do hold, you know, Zcash. And I think it has, you know, kind of a special place in the industry. And obviously give them a lot of credit for pioneering I think a lot of the ZKP research that has influenced in a lot of other downstream projects I've ended up using.

David Hoffman:
[34:39] I want to bring up this post from Nathan McCauley who works at Anchorage. He said, exciting launch today. Anchorage Digital's linked staking and trading for Hyperliquid is now live. Clients can simply link their Anchorage Digital staking account to any external trading account. No bridging, no changes to custody status and no interruptions to staking operation.

David Hoffman:
[34:59] Why I think this is interesting is in the trad world, you have segregation of brokerage and execution. So the exchange does not also custody. And this is actually the same market structure that's emerging here, where you have Anchorage for custody, but you just like plug in to Hyperliquid to do exchange. And this is actually something that ironically Gary Gensler always pointed at the crypto industries, like, look at these hooligans doing uncompliant things. We've learned these lessons. Don't conflate. Don't do what Coinbase is doing, which is put custody and exchange in the same place because you have potential things that look like that. like Alameda and FTX. And like, we've learned these lessons. And like all the people in the crypto industry, myself included, and I still am, are like, yeah, it's just more efficient and easier. And this is what blockchain technology enables. Like actually it's blockchains that are doing the custody and Coinbase is actually just the exchange. But yeah, new technology kind of breaks people's brains. I do find it interesting that we are now mimicking traditional infrastructure via regulatory compliance, but we're kind of doing it on our own. I don't know if you have any takes or any thoughts on that.

Tom Schmidt:
[36:10] Yeah, I think in many respects, this is kind of just an extension of the shift towards off-exchange settlement for centralized exchanges that we saw post-FTX, where you saw stuff like Fireblocks and Copper Clear Loop, take off as a way to, again, subgrit exchange from settlement. And I think, you know, I'm assuming a lot of Anchorage customers are probably asking for Hyperliquid. I know I've talked to a couple different primes and trading desks, and they have a lot of demand for Hyperliquid exposure, specifically people wanting to trade perps or other instruments on Hyperliquid. And so the answer is, how do you go about doing that? Well, we can plug it in like we do any other exchange. And now it's a new venue that people are able to trade on. And so I think it's the cool thing about crypto, as you've been saying is, hey, it's transparent and programmable. And so if you want to go and, you know, custody your assets on a single exchange and trade there, you can. Hey you can also you know uh trade via adex and sort of see what's actually happening on chain it's all it's all modular and and um uh uh transparent which is kind of the ultimate crux of of you know what a lot of the technology is about.

David Hoffman:
[37:21] Yeah yeah i just looked it up uh anchorage has about 28 billion dollars in aum which now in theory is just like one click away from hyper liquid that was always kind of the problem with hyper liquid is is bridging on to the exchange this is kind of fitting in like one of my stories of the year i pay attention to like This is just my own internal model that I have about threads, story threads to pull on. Michael Saylor's Stretch is like a story I pull on. And the platformization of Hyperliquid is a story that I'm paying attention to. How far can Hyperliquid go from migrating from just being a first-party exchange that me, the user, goes on to and presses buttons versus becoming a back-end platform? And this is firmly in the latter camp of like, this is Hyperliquid growing up and evolving into being a black back end platform, tapping into the AUM of the world. Doesn't matter where the capital is, but the capital comes to Hyperliquid because everyone wants to trade on Hyperliquid.

Tom Schmidt:
[38:16] Yeah, I think it's kind of another flavor of this DeFi mullet idea. I think it even, you know, Coinbase.

David Hoffman:
[38:21] Oh, thanks, you owe me a nickel.

Tom Schmidt:
[38:23] Yeah. Is that the rule? Maybe we'll debate this. we'll have a settlement offline but I it does seem like, This is a natural way for these markets to end up, again, like the internet, where you have different layers with standardized, protocols that really do their one single layer well, and then kick the other responsibilities up to another layer of abstraction that can get more specific and serve end clients. And, you know, maybe the answer is we have, you know, one big global standard for liquidity and everyone else can build their own, you know, brokerage or their own execution services or their own, you know, apps on top of it or whatever it might be. And so, I don't know, it's very cool to see how rapidly this has been getting adopted as well as just, again, it feels like this is kind of the boring revolution

Tom Schmidt:
[39:15] of crypto where you're using it in the back end and you don't even realize it.

David Hoffman:
[39:19] Yeah. Yeah. Speaking of the boring revolution of crypto, crypto volumes are down the lowest ever since September 2024 on centralized trading volumes. Meanwhile, real world asset perps are hitting record highs. And so we've seen this in the Coinbase S1 and the Robinhood S1 is just like crypto trading volume, Bitcoin, Ether, the blue chips and all the coins as well, just down and revenue just down for the centralized exchanges as a whole. But real world asset perp volume is up and to the right. And this really started with Hyperliquid doing listing gold at the start of this year, right before the gold mania, followed by oil at the start of the Iran war. And there's been a growth of real world asset trading volumes on perps. And so, again, this kind of is the story that we always said was going to happen. And unfortunately, it seems to coincide with like a lowering of trading volume of Bitcoin and Ether. Like now that we have like gold and oil, traders are trading gold and oil and they don't really care about Bitcoin and Ether. But it does seem like the sign of maturity of like we have real world asset perps. I do think that there's a very big real world asset perp story for the second half of this year.

Tom Schmidt:
[40:31] Yeah, I think like HIP3 volumes have already hit like 40% of hyperliquid volumes and I think they're growing. And I think there's a good chance through the end of the year that we see a day where HIP3 volumes actually exceed the rest of, you know, crypto volumes on hyperliquid and other exchanges, again, probably looking very similar. I do think a lot of these assets and that this asset focus is very, very cyclical, right? Like people want to trade oil when oil is very volatile and see some, you know, vol spike and then it goes back down and, you know, a year ago, no one really wanted to trade oil and, the beauty of a lot of these, you know, perp dexes is they are able to vary quickly and aggressively list new assets as they come online. You have to wait for, you know, IB to list, you know, SK Hynix. You can just go trade the perp, you know, today. And I think as long as we can see this kind of like hot ball of money, you know, new focus asset dynamic, I think it's actually pretty bullish for perps that have a lot more agility and ability to list these new assets in the same way that I would say Uniswap did in kind of 2020 and 2021, where a new DeFi token comes out. Well, it's on Uniswap before it's on Coinbase. And that is just a leg up and a liquidity moat that kind of builds on itself.

David Hoffman:
[41:44] Yeah, especially with being able to implement any asset that you can turn into a perp, which is anything. So long as there's a bull market somewhere, so long as there's a frenzy somewhere that's kind of bullish for the relevant perp platform. The only thing that's bearish for per platform is if like there's a global recession and all trading volumes go to zero because then your business runs out but i mean if bitcoin goes from 140 000 down to 60 000 but oil goes up gold goes up people want to trade those things anyways that's probably a decent amount of the reason why the hype token has just you don't see the bitcoin bear market in the hype token whatsoever

Tom Schmidt:
[42:22] Yeah, I think you just see this, again, this dispersion. I think that's kind of what a lot of these crypto exchanges are now trying to do of, hey, we need to diversify away from just crypto trading. I think, you know, Coinbase in 2022 was really trying to push outside of just trading and going into, you know, savings and yield and other types of assets, which you've kind of seen now see manifested through their card and, you know, their other types of yield products. And maybe we're seeing that same kind of revolution, but moving away from even crypto-specific products as well. I do think, honestly, even in a recession, I think people are still going to want to trade. It's one of those almost recession-proof kind of things where humans love to speculate and it feels like the cultural trend of speculating just has continued going up to the right. And I think short of some sort of, external force that's going to kind of revert it, it seems like this is going to be something is going to kind of proliferate.

David Hoffman:
[43:20] Let's get into my neck of the woods, crypto media. Blockworks has acquired Masari. So Masari is like an OG data analytics platform that also just integrated like a news and research engine as well. This was founded by Ryan Selkis. I don't know what he's up to these days. I have him use it on Twitter. Most people do. And this is actually...

Tom Schmidt:
[43:44] He's running for president. I don't know if you saw. No. No, he's not. Let's go.

David Hoffman:
[43:48] No, he's not.

Tom Schmidt:
[43:50] Well, anyone can run for president if you're 35 and born in America.

David Hoffman:
[43:53] Is he seriously running for president?

Tom Schmidt:
[43:56] I don't know. Was Trump seriously running for president? Was Kanye seriously running for president? Who knows?

David Hoffman:
[44:01] Sure, but Trump was Trump, and that's like, you can't say, yeah, Trump ran for president.

Tom Schmidt:
[44:05] Let me put it this way. He changed his handle.

David Hoffman:
[44:07] What's his handle?

Tom Schmidt:
[44:08] I think it's like Ryan Salkis 2028.

David Hoffman:
[44:11] No way, dude. Hang on. I have to look this up. Oh, my God. I'll see you next time. Wow. All right. Good luck, Ryan Selkis.

Tom Schmidt:
[44:21] Sorry, I have to show you that.

David Hoffman:
[44:23] Yeah, you really did. Anyways, Ryan Selkis left Missouri forever ago. I think he got kind of kicked out by the board because he was being deranged on Twitter. That's why I'm reacting in the way that I am. I don't know if we know specifically how much was paid, but the one rumor is that it's somewhere north of $10 million for Missouri, which is actually a pretty steep discount because there was a raise that Missouri did a Series B back in 2022, which valued Missouri at over $300 million, approximately $300 million. And so it is actually just a sign of, A, media broadly, news is hard. Media companies are not what they are today in the world of AI. Volume-based media is just not the same. It's all kind of like creator-led media rather than volume-led media. And Blockworks got a deal for $10 million. So congrats to the Blockworks team for picking up Mazzari.

Tom Schmidt:
[45:19] Yeah, it's pretty crazy to see. I mean, I feel like when I got in the industry, Masari was like extremely authoritative. I mean, we had a Masari sub. And I always think back in those days, I mean, Selkis was also just such a force on Twitter and in person. And it was a large part of the personality around it. I mean, yes. I mean, ConsenSys was also just such a big event.

David Hoffman:
[45:39] There was Masari mainnet.

Tom Schmidt:
[45:41] Yes, Masari mainnet. And, you know, I think once the kind of air starts to leak out, it's hard to kind of plug the hole. But it is a good product, so kudos to everyone involved on the acquisition.

David Hoffman:
[45:54] Tom, you got kids?

Tom Schmidt:
[45:55] I do not have kids.

David Hoffman:
[45:56] Neither do I, so we're going to talk as if we do have kids. This is Keir Starmer. What's his title? Prime Minister of the UK. He tweeted out, I am simply not prepared to be a bystander when the safety and happiness of our children is at stake. We got governments coming to protect children by banning social media access for children under 16 to give children their childhood back. So this is the UK banning social media for children now. Broadly, I kind of agree. Like, kids, don't be on Instagram. Go play tag. And at first glance, I think everyone can kind of agree with that. But if you get into the implementation details of how you actually ban the internet for a specific person and not another specific person, I think that's when it gets a little bit crazy. I don't know if you have a take on banning social media for kids, Tom.

Tom Schmidt:
[46:45] Yeah, totally agree. I don't think there's anything. I think most people would agree actually with keeping under 16s off of social media, i think maybe one the points of disagreement might be you know having this being implemented by the government instead of parents choosing to have this for their children which i think most parents are probably choosing to have this for the children and then two like you said, how do you do this you need more id age verification um which it just ends up creating this kind of slippery slope this obviously also honeypot for um you know kyc information and so i think that's kind Another thing people, you know, push back on is today it's, you know, ID verification for kids. You know, tomorrow it's who knows what.

David Hoffman:
[47:25] This does, I know the UK is no longer Europe, but this does seem like a very Europe thing to do. And I don't really have too much faith in their leadership over there, to be honest. And so I am kind of worried that Europe or the UK is going to allow this foot in the door because it's like a slippery slope, right? Like once one government figures out how to do this, they kind of set a model for any other interested government to follow suit. And, you know, you ban one piece of the internet. Over on our shore, domestically, in the United States, we had a piece of our internet get banned this week, and that was Fable out of Anthropic. You know, one service, one tiny little service, out of all the billion users of the internet, like not too many people were using it, but still, government took down a small piece of the internet. And I don't want to see that trend grow. And the reason why I put this in the agenda is because crypto definitely feels like the bulwark against this. Like crypto knows no borders, knows no government. Yeah, you know, same thing with like VPNs. There's like anti-government, anti-border technology out there. And so this is something I'm kind of keeping my eye on because if this gets a little bit too authoritarian, it probably won't be next year, probably won't be this election, but I could see this being a growing trend into the 2030s. Crypto is going to have a role to play here one way or another.

Tom Schmidt:
[48:41] Yeah, I think crypto and decentralized technology ultimately is it's the ultimate opt out, right? A lot of private companies choose to implement these kinds of age-limiting features or other limiting features. I mean, Discord added age-gating recently. But it's a private company opting in, and they use some kind of smart text. You're not uploading your ID or whatever. The problem is when you can't escape, what do you do? And I think always having an option to let people choose their own path is pretty important.

David Hoffman:
[49:13] Tom, that's all my topics. I got one more topic, but I want to throw it to you first. What are you excited about? What are you interested in? What's rattling around in your brain this week?

Tom Schmidt:
[49:21] What am i excited about um i um i was looking actually at uh some of the new um ai models that um again in the spirit of letting people you know choose their own path there's sort of this, uh newfound open source ai renaissance and so people are pretty happy about um glm 5.2 which is a chinese model that came out and has um, you know performance that is uh on par maybe it's surpassing you know opus 4.8 and people say hey if you orchestrate it correctly it's similar to Fable or Open Router, which was founded by Alex Atala, formerly of OpenSea.

David Hoffman:
[49:54] Yeah, we're recording a podcast with him next week.

Tom Schmidt:
[49:56] Oh, cool. Also came out with this sort of hybrid model that allows you to stick together many different models and get sort of Fable-level performance. And so it feels like there's this cool undercurrent and sort of similarities, actually, between crypto, what's happening in the AI industry right now in terms of a move towards open source and sort of self-sovereign compute, which is, I think, a much more optimistic vision for the future than the alternative.

David Hoffman:
[50:21] Do you see that intersecting with crypto in any way or is it just kind of like the ethos that overlaps?

Tom Schmidt:
[50:26] I think we see some kind of fruits of that today. I think just in terms of like, hey, how do these things ultimately get funded? How do you actually access compute for this? If it gets restricted on an inference provider level, maybe there's a way to tap into a more distributed inference network and it actually access some of these models. But today, it's more of a personality and sort of ethos alignment, I would say, where you see a lot of early crypto people coming to AI and vice versa, but ultimately driven by these same sort of ideas that, again, go back to kind of the early days of computing.

David Hoffman:
[51:04] There was one project I was talking to. There's a growing trend of AI labs kind of bait and switching you with their model where they tell you one model, but then you ask it, and like, I would like to use this particular model and then you ask the query and then they really just serve you another model on the back end and don't tell you. And to some degree, when I accidentally ask Opus 4.8 Max a stupid question, I don't need it. It can downshift me. But that's one thing if I'm if I'm like actually being intentional about my work and they're telling me I'm using Fable, but I'm actually getting some sonnet. I think that's a growing trend. And I have seen a handful of crypto projects trying to go after verified compute. I think this is what Nockchain is going after. And so actually verifying the model and everything kind of end to end is kind of like auditable and secure in the same way that we would expect our blockchains to be. And so this is also a growing trend that I know is out there. I'm definitely not an expert in it. But like something is brewing over in that neck of the woods.

Tom Schmidt:
[52:06] Totally. And I think there's also this sort of private compute component in terms of just data. You know, people, I think, trust, you know, these chatbots with a whole lot of personal information that they probably would not trust even Google with. Not realizing that hey this is um you know can be retained for you know arbitrary amounts of time by the by these companies that's subject to um, you know subpoena it can be trained not a good leak whatever um and i think that that it seems unsustainable to me that maybe a future is one where uh yeah people have had their entire personal lives you held on a single company's servers um and it seems like there's a move towards um having you know local or distributed private data, maybe accompanied with some sort of remote compute, but, it does seem like these two are kind of going to collide at some point.

David Hoffman:
[52:54] Everything you're saying is what Nier is doing, right?

Tom Schmidt:
[52:56] Nier is doing a lot of this, yes. I think it's like these sort of parallel currents between AI and crypto are kind of what I'm observing.

David Hoffman:
[53:04] Yeah, yeah, yeah. We got the USA game tomorrow, Tom. Are you going to watch it?

Tom Schmidt:
[53:08] Probably not. I am not really.

David Hoffman:
[53:09] A soccer fan. God, you're just not a sports guy. No, I mean... Neither am I, to be clear.

Tom Schmidt:
[53:14] Wait, wait. Are you wearing an Argentina jersey? What is this?

David Hoffman:
[53:18] Yeah, you know, I get Argentina pride for some reason, like down into my soul. And so let me tell you about a trade that I made this week, Tom. There is the July 3rd Miami game, which is like the one J versus two H group. And that is the first the first winner of the J group plays the runner up in the H group or vice versa. One of the two. There's like a five percent chance that that's Argentina versus someone. And so I bought tickets for that game on the chance that it's Argentina, which feels it feels good. It's probably priced accordingly. But if Argentina doesn't advance then it's like I could hedge it I could hedge it on Polymarket which is exactly what I'm going to show you right now that's actually not even where I was going with this

David Hoffman:
[54:07] But Argentina's got a 12% chance of winning the World Cup but let's go and see the actual chances that they win the bracket so Argentina 84% odds on Polymarket that it wins it's J group It has a game versus Austria on the 22nd, and that's going to be like my ticket either goes up in value or it goes down in value if Austria wins. And if it goes up in value, it'll go up like 15%. But if Argentina doesn't make it, then the new game is Austria versus like I think it's going to be like Uruguay or Spain or something. And that's just not as exciting because it's like this is Messi's last World Cup. And so I'm excited. I'm going to go down, hopefully, to Miami and watch the game. But this all rise on Argentina actually making it through their group.

Tom Schmidt:
[54:58] Yeah, I hope for your sake that they do, because Austria versus Uruguay does not sound nearly as exciting.

David Hoffman:
[55:04] As Argentina versus Spain. Yeah. Anyways, that's the trade I'm in. Tom, thanks for coming on the show and helping fill in for Ryan. Always a pleasure to have you.

Tom Schmidt:
[55:13] Thanks for having me.

David Hoffman:
[55:14] Bankless Nation, you guys know the deal. Crypto is risky. You can lose what you put in. But this is Frontier. It's not for everyone. and we're glad you are with us on the bankless journey. Thanks a lot.